Coffee Prices Surge: Factors Behind the Market Rally
Arabica and robusta coffee prices made notable gains on Friday, showing a continued upward trend amid global supply concerns.
On Friday, March arabica coffee (KCH25) closed up +3.60 (+1.05%), while March ICE robusta coffee (RMH25) increased by +62 (+1.13%). This week’s strong rally pushed arabica to a new record for nearest-futures prices and robusta to its highest levels in six weeks. Concerns about global coffee supply have been a key driver for these price increases, prompting significant buying activity from funds. Volcafe recently revised its 2025/26 estimate for Brazilian arabica coffee production down to 34.4 million bags, a reduction of approximately 11 million bags from its September forecast. This adjustment is attributed to the ongoing drought affecting Brazil’s coffee crop. Volcafe also anticipates a global deficit of -8.5 million bags for arabica in 2025/26, which is an increase from the -5.5 million bag deficit projected for 2024/25. This marks the fifth consecutive year of shortfalls in supply.
The Brazilian real (^USDBRL) has also contributed positively to coffee prices. The real reached a 1.75-month high against the US dollar, which tends to deter coffee producers in Brazil from selling exports at favorable prices.
A significant recent development came from Conab, Brazil’s government crop forecasting agency. On Tuesday, it reduced its 2024 coffee crop estimate by -1.1% to 54.2 million bags, down from 54.8 million bags projected in September.
Arabica coffee’s strength is further supported by inadequate rainfall in Brazil. Somar Meteorologia reported that the Minas Gerais region, the largest area for arabica production in Brazil, received only 29.6 mm of rain last week, equivalent to 53% of the historical average.
Support for coffee prices also emerged from a December 20 assessment by Safras & Mercado, which estimated the Brazilian coffee crop for 2025/26 at 62.45 million bags, representing a 5% year-on-year decline. They expect arabica production to decrease by 15% year-on-year to 38.35 million bags due to the drought, while robusta output is projected at 24.1 million bags.
Last year’s dry El Niño weather may result in lasting harm to coffee crops across South and Central America. Since April, Brazil has experienced below-average rainfall, impacting coffee trees during the flowering stage, which is critical for crop development. According to Cemaden, 2023 marks the driest conditions Brazil has seen since 1981. Colombia, the second-largest producer of arabica coffee, is gradually recovering from last year’s drought caused by El Niño.
Robusta coffee prices are also benefitting from declining production levels. In Vietnam, the 2023/24 coffee crop has dropped by -20% to 1.472 million metric tons, marking the smallest yield in four years. The USDA Foreign Agricultural Service (FAS) projected a slight dip in Vietnam’s robusta production for 2024/25 to 27.9 million bags, down from 28 million bags in 2023/24. However, on December 3, the Vietnam Coffee and Cocoa Association upgraded its 2024/25 production forecast to 28 million bags from 27 million.
Increased coffee exports from Brazil could exert downward pressure on prices. Last Wednesday, Cecafe reported record arabica exports from Brazil in 2024, rising by +20% year-on-year to 37 million bags, while robusta coffee exports surged +98% year-on-year to 9.4 million bags.
Rising inventories are another bearish influence on coffee prices. ICE-monitored robusta coffee inventories climbed to a 3.75-month high of 4,603 lots as of Friday. Although arabica coffee inventories reached a 2.5-year high of 993,562 bags on January 6, they have since retreated and fell to a six-week low of 928,935 bags on Friday.
Recent reports indicating larger global coffee exports could also negatively affect prices. The International Coffee Organization (ICO) noted on December 5 that global coffee exports for October, marking the beginning of the 2024/25 season, rose by +15.1% year-on-year to 11.13 million bags. For the entire 2023/24 season, exports increased by +11.7% year-on-year to 137.27 million bags. Additionally, Brazil’s coffee export figures reported by Cecafe indicated a +30.2% year-on-year increase to a record 46.3 million bags in 2024.
Adding to the bearish outlook, ICO reported that global coffee production for the 2023/24 season increased by +5.8% year-on-year to a record-high of 178 million bags, thanks to an exceptional off-biennial crop year. At the same time, global coffee consumption rose by +2.2% year-on-year to 177 million bags, resulting in a 1 million bag surplus.
The USDA’s recent biannual report delivered mixed signals regarding coffee prices. It projected world coffee production in 2024/25 to rise by +4.0% year-on-year to 174.855 million bags. Arabica production is expected to increase by +1.5% to 97.845 million bags, followed by robusta at +7.5% to 77.01 million bags. The USDA forecasts a decrease in ending stocks to a 24-year low of 20.867 million bags, down -6.6% from the previous year’s 22.347 million bags. Moreover, Brazil’s anticipated 2024/25 coffee production is set at 66.4 million metric tons, lower than the USDA’s previous projection of 69.9 million metric tons. Therefore, Brazil’s ending inventories are predicted at 1.2 million bags, marking a 26% year-on-year decrease by the end of the 2024/25 season in June.
On the date of publication,
Rich Asplund
did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
